EUR/USD Forecast After the Red-Hot US Inflation Data
The EUR/USD price dipped sharply on Tuesday after the latest US consumer price index (CPI) data. It dropped to a low of 1.0040, which was lower than this week’s high of 1.0200. Other pairs like GBP/USD and AUD/USD also dipped while the US dollar index soared.
US inflation data
The EUR/USD price dropped after the US published stonger-than-expected data. According to the Bureau of Labor Statistics (BLS), the headline consumer inflation rose from 0.0% in July to 0.1% in August. This increase was better than the median estimate of -0.1%. On a year-on-year basis, inflation rose by 8.3%, which was lower than the median estimate of 8.1%.
Core inflation, which excludes volatile food and energy products, rose from 0.3% to 0.6%, which was also higher than the median estimate of 0.3%. It rose from 5.9% to 6.3% on a year-on-year basis. These numbers mean that the Federal Reserve will keep hiking interest rates in the coming months.
The Fed has hiked interest rate by 225 basis points this year and started its quantitative tightening (QT) policy. Therefore, the Fed will likely hike interest rate by either 0.50% or 0.75% next week.
The EUR/USD pair also fell after the latest inflation data from Germany and Spain. Inflation in the two countries rose to 7.9% and 10.5%, respectively. All this was substantially higher than the European Central Bank (ECB) target of 2.0%.
The four-hour chart shows that the EUR/USD pair made a strong pullback after the US published strong inflation data. It dropped below the important support level at 1.0088, which was the highest level on August 26.
The pair moved below the 25-day and 50-day moving averages while the MACD has made a bearish crossover pattern. Therefore, the pair will likely continue falling as sellers target the next key support level at 0.9900. A move above the important resistance level at 1.0088 will invalidate the bearish view. Learn more about how to send money to Germany.